Tower Company owned a service truck that was purchased at the beginning of Year 1 for $51,000. It had an estimated life of three years and an estimated salvage value of $3,000. Tower company uses straight-line depreciation. Its financial condition as of January 1, Year 3, is shown on the first line of the horizontal statements model. In Year 3, Tower Company spent the following amounts on the truck: Jan. 4 Overhauled the engine for $8,000. The estimated life was extended one additional year, and the salvage value was revised to $2,000. July 6 Obtained oil change and transmission service, $450. Aug. 7 Replaced the fan belt and battery, $550. Dec. 31 Purchased gasoline for the year, $9,500. 31 Recognized Year 3 depreciation expense. Required Record the Year 3 transactions in a statements model. (In the Cash Flow column, indicate whether the item is an operating activity (OA), an investing activity (IA), a financing activity (FA), or net change in cash (NC); leave the cell blank if the Statement of Cash Flows is not affected. Enter any decreases to account balances and cash outflows with a minus sign. Not all cells will require entry.)
Tower Company owned a service truck that was purchased at the beginning of Year 1 for $51,000. It had an estimated life of three years and an estimated salvage value of $3,000. Tower company uses straight-line depreciation. Its financial condition as of January 1, Year 3, is shown on the first line of the horizontal statements model. In Year 3, Tower Company spent the following amounts on the truck: Jan. 4 Overhauled the engine for $8,000. The estimated life was extended one additional year, and the salvage value was revised to $2,000. July 6 Obtained oil change and transmission service, $450. Aug. 7 Replaced the fan belt and battery, $550. Dec. 31 Purchased gasoline for the year, $9,500. 31 Recognized Year 3 depreciation expense. Required Record the Year 3 transactions in a statements model. (In the Cash Flow column, indicate whether the item is an operating activity (OA), an investing activity (IA), a financing activity (FA), or net change in cash (NC); leave the cell blank if the Statement of Cash Flows is not affected. Enter any decreases to account balances and cash outflows with a minus sign. Not all cells will require entry.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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Question
Tower Company owned a service truck that was purchased at the beginning of Year 1 for $51,000. It had an estimated life of three years and an estimated salvage value of $3,000. Tower company uses straight-line
In Year 3, Tower Company spent the following amounts on the truck:
| Jan. | 4 | Overhauled the engine for $8,000. The estimated life was extended one additional year, and the salvage value was revised to $2,000. | |
| July | 6 | Obtained oil change and transmission service, $450. | |
| Aug. | 7 | Replaced the fan belt and battery, $550. | |
| Dec. | 31 | Purchased gasoline for the year, $9,500. | |
| 31 | Recognized Year 3 depreciation expense. |
Required
- Record the Year 3 transactions in a statements model. (In the Cash Flow column, indicate whether the item is an operating activity (OA), an investing activity (IA), a financing activity (FA), or net change in cash (NC); leave the cell blank if the Statement of
Cash Flows is not affected. Enter any decreases to account balances andcash outflows with a minus sign. Not all cells will require entry.)
Transcribed Image Text:Date
Balance
1/4
7/6
8/7
12/31
12/31
Total
Cash
Assets
40,000 +
+
+
+
+
+
+
Balance Sheet
BV Truck
19,000 =
TOWER COMPANY
Horizontal Statements Model for Year 3
=
Stockholders' Equity
Retained
Earnings
Common
Stock
17,000+
+
+
+
+
+
42,000
Revenue
Income Statement
-
-1
-1
Expense Net Income
=
=
=
=
=
=
Statement of
Cash Flow
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